TWFY Bill Tracker

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Building Societies (Funding) and Mutual Societies (Transfers) Bill 2006-07

This is the Bill as it currently stands, on 3rd August 2007. View changes to this bill in the Lords Committee stage. Back to main page

A Bill To Make provision in relation to funding limits in respect of building societies; to provide consequential rights to building society members; and to make provision in connection with the transfer of the business of certain mutual societies.

Contents

  1. Funding limit for building societies
  2. Power to alter priorities on dissolution and winding up
  3. Transfers to subsidiaries of other mutuals
  4. Transfers to subsidiaries: distribution of funds
  5. Channel Islands and Isle of Man
  6. Short title, commencement and extent

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

  1. 1        Funding limit for building societies

    1. 11. Subsection (1) amends section 7 of the Building Societies Act 1961 ("the 1986 Act") to make it possible for the Treasury to change the funding limit for building societies.

      (1)    In section 7 of the Building Societies Act 1986 (c. 53) (funding limit)—

      1. (a)    after subsection (6) insert—
        1. New subsection (6A) enables the Treasury to make an order providing that the limit on non-member funding in section 7(1) has effect as if the current limit of 50% were a greater amount, up to a maximum of 75%, specified in the order. The order may also prohibit societies from applying the increased percentage unless they have passed a resolution of the kind specified in the order.

          “(6A)    The Treasury may, by order—

          1. (a)    provide for subsection (1) to have effect as if the reference to 50 per cent were a reference to such greater percentage (not exceeding 75) as they think appropriate;
          2. (b)    prohibit a society from applying the increased percentage unless a resolution of the society of such description as the Treasury think appropriate is passed in favour of applying the increased percentage.
        2. New subsection (6B) provides that an order under subsection (6A) is of no effect unless there is also an order in place under new section 90B, giving members equality with creditors in dissolution and winding up. This aims to protect the position of members: if no order were made under s.90B, an increase in wholesale (non-member) funding would put them at greater risk in the event of an insolvency, as funds would be used to satisfy a larger pool of creditors first.

          (6B)    An order under subsection (6A) is of no effect at any time unless, at the same time, there is also in force an order under section 90B (power to alter priorities on dissolution and winding up).

        3. New subsection (6C) provides that an order under subsection (6A) may not be amended or revoked if the effect is to reduce the percentage specified in the order. The purpose is to ensure that the funding limit, once increased, cannot be reduced. If the Treasury were able to raise the funding limit and later reduce it, that could deter building societies from taking advantage of the raised funding limit. There would be no certainty that they could continue to use that amount of wholesale funding in the future.

          (6C)    An order under subsection (6A)(a)—

          1. (a)    may not be amended so as to reduce the percentage specified in the order;
          2. (b)    may not be revoked, unless it is replaced by another such order specifying the same or a greater percentage.”;
      2. (b)    in subsection (8), after “subsection” insert “(6A) or”;
      3. (c)    after subsection (8) insert—
        1. New subsection (8A) requires an order under subsection (6A) to be approved in draft by affirmative resolution in each House of Parliament before it is made.

          “(8A)    The power to make an order under subsection (6A) is exercisable by statutory instrument but no such order may be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.”.

    2. Subsection (2) amends section 5 of the 1986 Act, which requires the purpose or principal purpose of a building society to be that of making loans secured on residential property which are funded substantially by its members.

      (2)    In section 5 of that Act (establishment, constitution and powers), after subsection (10) insert—

      1. New subsection (11) gives the Treasury a power to amend section 5(1)(a) of the 1986 Act so as to alter the extent to which loans are required to be funded by the society's members. This will ensure that the requirement in section 5 is consistent with the revised funding limit, as that will allow societies to have less member funding.

        “(11)    The Treasury may by order amend subsection (1)(a) so as to alter the extent to which the making of loans is required to be funded by a society’s members.

      2. New subsections (12) and (13) give the Treasury a power to make consequential, saving, supplementary or transitional provision. This includes provision amending specified provisions of the Act, concerning the functions of the Financial Services Authority, amalgamations and societies' memoranda. This will ensure that those sections are consistent with section 5 as amended.

        (12)    An order under this section may make such consequential, saving, supplementary or transitional provision as the Treasury think necessary or expedient.

      3. (13)    The consequential provision that may be made by virtue of subsection (12) includes, in particular, provision amending any the following so far as relating to funding by the members of a society—

        1. (a)    section 1(1)(a) (functions of the Financial Services Authority in relation to building societies);
        2. (b)    section 93(2)(a) (amalgamations);
        3. (c)    paragraph 2 of Schedule 2 to this Act (memorandum).
      4. New subsection (14) requires an order made under the section to be approved in draft by affirmative resolution in each House of Parliament before it is made.

        (14)    The power to make an order under this section is exercisable by statutory instrument, but no such order may be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.”.

  2. This clause inserts new section 90B into the 1986 Act. Subsection (1) gives the Treasury the power to make an order to ensure that, on the winding up or dissolution by consent of a society, any assets available to satisfy the society's liabilities to creditors or to shareholders are applied in satisfying those liabilities pari passu (equally). The order may make amendments of the 1986 Act, as well as consequential, supplementary, transitional and saving provision (subsection (5)).

    2        Power to alter priorities on dissolution and winding up

    After section 90A of the Building Societies Act 1986 (c. 53) insert—

    1. “90B     Power to alter priorities on dissolution and winding up

      1. (1)    The Treasury may by order make provision for the purpose of ensuring that, on the winding up, or dissolution by consent, of a building society, any assets available for satisfying the society’s liabilities to creditors or to shareholders are applied in satisfying those liabilities pari passu.
      2. Subsection (2) provides that liabilities to creditors do not include liabilities in respect of subordinated deposits, preferential debts, and any other category of liability specified by the Treasury. Subsection (3) makes a similar provision in respect of deferred shares. The purpose is to ensure that only ordinary shareholding members are given equality with the general pool of unsecured creditors.

        (2)    Liabilities to creditors do not include—

        1. (a)    liabilities in respect of subordinated deposits;
        2. (b)    liabilities in respect of preferential debts;
        3. (c)    any other category of liability which the Treasury specifies in the order for the purposes of this paragraph.
      3. (3)    Liabilities to shareholders do not include liabilities in respect of deferred shares.
      4. (4)    A preferential debt is a debt which constitutes a preferential debt for the purposes of any of the enactments specified in paragraph 1 of Schedule 15 to this Act (or which would constitute such a debt if the society were being wound up).
      5. (5)    An order under this section may—
        1. (a)    make amendments of this Act;
        2. (b)    make different provision for different purposes;
        3. (c)    make such consequential, supplementary, transitional and saving provision as appears to the Treasury to be necessary or expedient.
      6. Subsection (6) requires an order under new section 90B to be approved in draft by affirmative resolution in each House of Parliament before it is made.

        (6)    The power to make an order under this section is exercisable by statutory instrument but no such order may be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.”.

  3. 3        Transfers to subsidiaries of other mutuals

    1. Subsection (1) gives the Treasury the power to modify provisions in the legislation identified in subsection (10), to facilitate, or in consequence of, a transfer of business from a mutual society to the subsidiary of another mutual society. "Modifications" include omissions, alterations and additions (subsection (8)). A mutual society is a building society, a friendly society (within the meaning of the Friendly Societies Act 1992) or an industrial and provident society (subsection (9)). A subsidiary of a mutual society is a company in which the society holds or controls a majority of the voting rights and in relation to which the society can appoint or remove a majority of the board of directors (subsection (11)).

      (1)    The Treasury may, by order, make such modifications of the transfer provisions as it thinks appropriate to facilitate, or in consequence of, the transfer of the whole of the business of a mutual society (the transferor) to a subsidiary of a mutual society (whether or not of the same type) (the transferee).

    2. Subsection (2) specifies that the order may make provision concerning certain rights, including membership rights, in the mutual society controlling the subsidiary. This will enable the Treasury to require that members of the transferring mutual society, and new customers of the subsidiary, are given equivalent rights to those they would have enjoyed as members of the transferring mutual.

      (2)    An order under this section may make provision as to the rights (including rights of and pertaining to membership) in relation to the mutual society of which the transferee is a subsidiary—

      1. (a)    of the members of the transferor;
      2. (b)    of persons who, after the transfer, become customers of the transferee.
    3. Subsection (3) provides that the order may confer functions on the Financial Services Authority. Those functions might for example include a power to direct that, in certain circumstances, restrictions on transfers of shares in the new subsidiary, or transfers of its business, will not apply. The Authority has a similar power under s.101(4) of the Building Societies Act 1986.

      (3)    An order under this section may confer such functions on the Financial Services Authority as the Treasury think appropriate.

    4. (4)    An order under this section—
      1. (a)    may make such consequential, saving, supplementary or transitional provision as the Treasury think appropriate;
      2. (b)    may make different provision for different purposes.
    5. (5)    The power to make an order under this section is exercisable by statutory instrument.
    6. Subsections (6) and (7) provide that an order which modifies the primary legislation identified in subsection (10), or which modifies subsection (11), must be approved in draft by affirmative resolution of each House of Parliament before it is made. An order which does not modify those provisions will be subject to annulment by a resolution of either House. This allows an order which modifies subordinate legislation only to be made under the negative resolution procedure.

      (6)    An order which—

      1. (a)    makes modifications of a provision mentioned in paragraph (a), (b) or (c) of subsection (11), or
      2. (b)    amends paragraph (a) or (b) of subsection (13),
      (whether or not it contains any other provision) must not be made unless a draft of it has been laid before and approved by resolution of each House of Parliament.
    7. (7)    Otherwise, an order is subject to annulment in pursuance of a resolution of either House of Parliament.
    8. (8)    If a draft of an order mentioned in subsection (6) would, apart from this subsection, be treated for the purposes of the Standing Orders of either House of Parliament as a hybrid instrument it must proceed in that House as if it were not such an instrument.
    9. (9)    Modifications include omissions, additions and alterations.
    10. (10)    A mutual society is—
      1. (a)    a building society incorporated or deemed to be incorporated under the Building Societies Act 1986 (c. 53);
      2. (b)    a friendly society within the meaning of the Friendly Societies Act 1992 (c. 40);
      3. (c)    an industrial and provident society registered or deemed to be registered under the Industrial and Provident Societies Act 1965 (c. 12);
      4. (d)    an EEA mutual society.
    11. (11)    The transfer provisions are—
      1. (a)    sections 97 to 102D of the Building Societies Act 1986 (c. 53), paragraph 30 of Schedule 2 to that Act and Schedule 17 to that Act;
      2. (b)    sections 86 and 88 of and Schedule 15 to the Friendly Societies Act 1992;
      3. (c)    section 52 of the Industrial and Provident Societies Act 1965;
      4. (d)    provision contained in subordinate legislation (within the meaning of the Interpretation Act 1978) made under any provision mentioned in paragraph (a), (b) or (c).
    12. (12)    An EEA mutual society is—
      1. (a)    a body which is a European Cooperative Society for the purposes of Council Regulation (EC) No 1435/2003 (statute for a European Cooperative Society);
      2. (b)    a body which is established as a cooperative under the law of an EEA state as mentioned in that Regulation;
      3. (c)    a body which is a cooperative or mutual undertaking of such description as the Treasury specify by order and which is established or operates in accordance with the laws of an EEA state or any of the Channel Islands or the Isle of Man.
    13. Subsection (11) specifies what a subsidiary of a mutual society is, and allows the Treasury to amend this to make the degree of control required by the mutual society over the subsidiary more or less onerous.

      (13)    A subsidiary of a mutual society is a relevant company—

      1. (a)    in which the society holds a majority of the voting rights or of which the society is a member and alone controls, pursuant to an agreement with other shareholders or members, a majority of the voting rights, and
      2. (b)    in relation to which the society has the right to appoint or remove a majority of the company’s board of directors,
      but the Treasury may, by order, amend paragraphs (a) and (b) to make the degree of control required more or less onerous.
    14. (14)    A relevant company is—
      1. (a)    a company within the meaning of the Companies Act 2006 (or, before the commencement of Part 1 of that Act, the Companies Act 1985);
      2. (b)    a company within the meaning of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6));
      3. (c)    a body corporate which is incorporated in an EEA state other than the United Kingdom.
    15. (15)    For the purposes of paragraph 17 of Schedule 1 to the Financial Services and Markets Act 2000 (c. 8) (power to charge fees) a function conferred on the Financial Services Authority by an order under this section is to be treated as a function conferred under or as a result of that Act.
  4. This clause has effect only if an order made under clause 3 so provides (subsection (1)), and applies only to transfers to which the order applies (subsection (2)).

    4        Transfers to subsidiaries: distribution of funds

    1. (1)    An order under section 3 may provide for this section to have effect.
    2. (2)    Subsection (3) applies if the terms of a transfer to which the order applies include provision for part of the funds of the transferor or the mutual society of which the transferee is a subsidiary (the holding mutual) to be distributed in consideration of the transfer among the members of—
      1. (a)    the transferor,
      2. (b)    the holding mutual, or
      3. (c)    both the transferor and the holding mutual.
    3. Subsection (3) provides that a distribution of funds which exceeds limits prescribed by the Treasury must be approved by the transfer resolution of the mutual society making the transfer, and by a resolution of the holding mutual of a kind specified by the Treasury. A distribution which does not exceed the prescribed limit must only be approved by the transfer resolution or by the resolution of the holding mutual.
      A distribution of funds is a distribution of part of the funds of the transferring society, or of the holding mutual, in consideration of the transfer, among the members of the transferor, the holding mutual or both of them (subsection (2)). The transfer resolution is the resolution specified in subsection (5) which approves the transfer. The holding mutual is the mutual society of which the transferee is a subsidiary (subsection (2)).

      (3)    The provision for the distribution must be authorised as follows—

      1. (a)    it must not exceed the limits prescribed by order under subsection (4), and the distribution must be approved (in the case of the transferor) by the transfer resolution or (in the case of the holding mutual) by a resolution of such description as the Treasury specifies by order;
      2. (b)    if the provision for a distribution exceeds the prescribed limits, it must be approved by each of the resolutions mentioned in paragraph (a).
    4. Subsection (4) requires the Treasury to authorise such distributions and to prescribe limits. If an order made under clause 3 gives effect to clause 4, it will be necessary for the Treasury to authorise distributions and prescribe limits for subsection (3) of clause 4 to work.
      The clause is similar to the provisions on distributions of funds on mergers of building societies in s.96(4) to (6) of the Building Societies Act 1986. It will create a less onerous procedure for distributions of funds in transfers to subsidiaries of other mutuals, in particular for distributions in transfers of building societies, which are currently limited to shareholding members of two or more years' standing under s.100(9) of the 1986 Act.

      (4)    The Treasury must by order authorise distributions of funds to members by mutual societies participating (directly or through a subsidiary) in transfers to which an order mentioned in subsection (1) applies, subject to limits specified by or determined in accordance with the order.

    5. (5)    A transfer resolution is—
      1. (a)    in relation to a building society, each of the resolutions required pursuant to paragraph 30 of Schedule 2 to the Building Societies Act 1986 (c. 53);
      2. (b)    in relation to a friendly society, the resolution required by section 86(2)(b) of the Friendly Societies Act 1992 (c. 40);
      3. (c)    in relation to an industrial and provident society, the resolution required by section 52 of the Industrial and Provident Societies Act 1965 (c. 12).
    6. (6)    Expressions used in this section and in section 3 have the same meaning as in that section.
    7. Subsection (7) provides that subsections (4) to (7) of clause 3 apply to an order made under clause 4. This means that an order which only makes provision under subsections (3) and (4) of clause 4 and does not modify primary legislation will be subject to the negative resolution procedure. However, the clause 4 powers may be exercised at the same time as the clause 3 powers in an affirmative resolution order.

      (7)    Subsections (4) to (7) of that section apply to an order under this section as they apply to an order under that section.

  5. 5        Channel Islands and Isle of Man

    Her Majesty may by Order in Council provide for any of the provisions of this Act to extend, with or without modifications, to any of the Channel Islands or to the Isle of Man.

  6. Subsection (2) provides for the Bill to be commenced by one or more Treasury orders. Subsection (3) provides that the Act extends to the whole of the United Kingdom. However, as the Industrial and Provident Societies Act 1965 does not extend to Northern Ireland, any modifications to that Act under clause 3 will not extend there.

    6        Short title, commencement and extent

    1. (1)    This Act may be cited as the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007.
    2. (2)    The preceding sections of this Act shall come into force on such day as the Treasury may by order made by statutory instrument appoint, and different days may be appointed for different purposes.
    3. (3)    This Act extends to the whole of the United Kingdom.